How Far Can Luxury Brands Travel Avoiding the Pitfalls of Luxury Brand Extension

Topics: Branding, Brand equity, Branding companies Pages: 21 (7300 words) Published: March 19, 2012
Business Horizons (2009) 52, 187—197

How far can luxury brands travel? Avoiding the pitfalls of luxury brand extension Mergen Reddy a, Nic Terblanche b, Leyland Pitt c,*, Michael Parent c a

Capgemini Consulting, P.O. Box 785827, Sandton, 2146, South Africa Stellenbosch University, Private Bag X1, Matieland, 7602, South Africa c Segal Graduate School of Business, Simon Fraser University, 500 Granville Street, Vancouver, BC V6C 1W6, Canada b

Luxury brands; Brand extensions; Degree of adjacency; Premium adjacency matrix

Abstract Brand extensions are always tempting to marketers, and in the case of luxury brands the allure is particularly strong. While the path to luxury brand success may be partly paved with extensions, there are even more examples of brand extension disasters that litter the way. Brand extensions continue to be among the most researched and studied phenomena in marketing. When it comes to luxury brands, however, the factors that lead to successful extension have received far less attention. In this article, we consider the notion of perceived premium degree of the brand as a function of its category, and what we term the degree of adjacency between its product categories. Building on our research, which found that a luxury brand’s perceived premium degree has a different impact on profitability depending on whether or not the brand is spread across adjacent product categories, we demonstrate when luxury brand extensions work–—and when they fail. Perhaps most importantly, we herein introduce the premium adjacency matrix as a tool for luxury brand managers to consider in formulating extension strategies. # 2008 Kelley School of Business, Indiana University. All rights reserved.

1. The temptation of luxury brand extension
While there are almost as many opinions on fine wines as there are wines and wine critics, most * Corresponding author. E-mail addresses: (M. Reddy), (N. Terblanche), (L. Pitt), (M. Parent).

would agree that Chateau Margaux, the famous ˆ Bordeaux first growth, is up there with the very best. It is a wine of which author William Styron (1992) wrote, in the novel Sophie’s Choice, ‘‘when you live a good life like a saint and die, that must be what they make you to drink in paradise’’ (p. 151). It would be a marketer’s dream to extend the Chateau ˆ Margaux brand. It could perhaps be broadened to less rare, more readily available early drinking wines. Or, partnerships with wineries in other countries

0007-6813/$ — see front matter # 2008 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2008.11.001

188 could be formed. It might even be extended to other beverages, or to a range of gourmet food products. It could even encompass hospitality offerings or a selection of durable luxury goods. So far, though, Chateau Margaux has resisted the ˆ temptation to extend the legendary brand to anything other than great wines–—and only three, at that (Deighton et al., 2006). In contrast, first growth competitors such as Chateau Haut-Brion and ˆ Chateau Mouton-Rothschild have extended their ˆ brands in a number of ways. Haut-Brion markets a wine called Clarendelle at around $20 a bottle. Mouton-Rothschild, through alliance with Mondavi in California, produces and markets Opus One for about $250 a bottle; partnered with Vina Concha y ˜ Toro in Chile, it produces and markets Almaviva for around $75 a bottle. While these are premium priced wines, they never reach the heady price levels of first growths; for example, a 2000 Chateau Margaux will ˆ sell for approximately $900 per bottle. MoutonRothschild also mass markets red and white wines, at a price point less than $20 per bottle, under the Mouton Cadet label. Even the legendary Chateau ˆ Petrus has a brand of merlot associated with it which ´ sells for under $20 a bottle. While estimates of its size...

References: Allen, K. (2007, September 1). Despite the turmoil, conspicuous consumption is still in vogue. The Guardian, p. 37. Anderson, E. W., Fornell, C., & Lehmann, D. R. (1994). Customer satisfaction, market share, and profitability: Findings from Sweden. Journal of Marketing, 58(3), 53—66. Anthony, S. D., & Christensen, C. M. (2003). Performance, convenience, price: What’s your brand about? Strategy and Innovation, 1(4), 3—6. Balachander, S., & Ghose, S. (2003). Reciprocal spillover effects: A strategic benefit of brand extensions. Journal of Marketing, 67(1), 4—13. Barry, J. (1964, August 23). Portrait of Chanel No. 1. The New York Times, pp. SM30-31, SM94. Buzzell, R. D. (2004). The PIMS program of strategy research: A retrospective appraisal. Journal of Business Research, 57(5), 478—485. Buzzell, R. D., & Gale, B. T. (1987). The PIMS principles: Linking strategy to performance. New York: The Free Press. Cohen, M. (2007, May). Defining global luxury. Paper presented at the ESOMAR 2007 Conference, Florence, Italy. Czellar, S. (2003). Consumer attitude toward brand extensions: An integrative model and research propositions. International Journal of Research in Marketing, 20(1), 97—115. Deighton, J., Pitt, L. F., Dessain, V., Beyersdorfer, D., & Sjoman, ¨ A. (2006). Marketing Chateau Margaux (Case #507033). Boston: Harvard Business School Publishing. Francke, L. B., Whitman, L., & Gilbert, S. (1976, March 22). Princess of fashion. Newsweek, 52. Helyar, J. (2002). Will Harley-Davidson hit the wall? Fortune, 146(3), 120—124. Jacobson, R., & Aaker, D. A. (1987). The strategic role of product quality. Journal of Marketing, 51(4), 31—44.
How far can luxury brands travel? Avoiding the pitfalls of luxury brand extension
Keller, K. L., & Sood, S. (2003). Brand equity dilution. Sloan Management Review, 45(1), 12—15. Meyvis, T., & Janiszewski, C. (2004). When are broader brands stronger brands? An accessibility perspective on the success of brand extensions. Journal of Consumer Research, 31(2), 346— 357. Nueno, J. L., & Quelch, J. A. (1998). The mass marketing of luxury. Business Horizons, 41(6), 61—68. Reddy, M., & Terblanche, N. (2005). How not to extend your luxury brand. Harvard Business Review, 83(12), 20—24. Ries, A., & Trout, J. (1982). Positioning: The battle for your mind. New York: Warner Books. Smith, J. W. (2003). The mainstreaming of affluence. Marketing Management, 12(6), 52—53.
Stern, B. B. (2006). What does brand mean? Historical-analysis method and construct definition. Journal of the Academy of Marketing Science, 34(2), 216—223. Styron, W. (1992). Sophie’s choice. New York: Vintage Books. Sullivan, M. (1990). Measuring image spillovers in umbrellabranded products. Journal of Business, 63(3), 309—329. Szymanski, D. M., Bharadwaj, S. G., & Varadarajan, P. R. (1993). An analysis of the market share-profitability relationship. Journal of Marketing, 57(3), 1—18. Volckner, F., & Sattler, H. (2006). Drivers of brand extension ¨ success. Journal of Marketing, 70(2), 18—34. Weigley, R. F. (1973). A strategy for Pacific Ocean War. In The American way of war: A history of United States military strategy and policy (pp. 242—268). New York: Macmillan.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Global Luxury Brands and Recession Essay
  • Luxury Brand Essay
  • Luxury Brands Essay
  • Brand extension Essay
  • Essay about Fashion: Branding and Luxury Brands
  • overview of a Luxury Fashion Brand Essay
  • Essay about Marketing Strategies for Luxury Brands
  • Luxury brands growth in India Essay

Become a StudyMode Member

Sign Up - It's Free
Nowhere Mind | Collector Lot 3 Interrupteurs Vintage Porcelaine Bakelite Design Loft Superbe | Goosebumps 2: Haunted ...